July 22nd 2006

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Articles from this issue:

CANBERRA OBSERVED: Costello stays on ... for the time being

EDITORIAL: China: let the truth be told

ECONOMY: ABS report card on Australia's economy

NATIONAL AFFAIRS: Liberals turning to Whitlam-style centralism

AGRICULTURE: Tax breaks for wealthy hurting agriculture

INTERNET FILTERING: Coonan's cash buys a dud

STRAWS IN THE WIND: In days of old, when knights were bold / Out of the mouths of babes and sucklings / When the music stopped / The never-ending blood feud / Keeping the lid on our schools

CULTURE WARS: Is it too late to save our civilisation?

SCHOOLS: Time to teach proper history

OPINION: The Muslim problem facing Australia

MEDICAL SCIENCE: Media hype over cloning and embryo stem cells

MEDIA: Time to evict Channel Ten's 'Big Brothel'

Adoption fears (letter)

Aboriginal tragedy (letter)

Sexual integrity and Big Brother (letter)

BOOKS: Laurence Rees, AUSCHWITZ: The Nazis and the 'Final Solution' / THE NAZIS: A Warning from History


Books promotion page

ABS report card on Australia's economy

by Colin Teese

News Weekly, July 22, 2006
How much has Australia benefitted from 25 years of market deregulation? Recently published ABS figures show that the performance of Australian manufacturing is appalling, and the decline of agriculture even worse, according to a former deputy secretary of the Department of Trade, Colin Teese.

The Australian Bureau of Statistics (ABS) has released data on total output, broken down by market sectors, comparing 1980 with 2005. The data are most revealing.

Quite apart from the data on individual market sectors, the aggregations themselves tell a story. Total output of the economy - in effect, the gross domestic product (GDP) of the Australian economy - is up 126 per cent, which means it has slightly more than doubled in a quarter of a century.

On the face of it, the more than doubling of GDP over that period suggests a quite respectable economic performance. Yet two questions arise.

Growth performance

First, are we doing any better now than in the preceding 25 years? We know this is not so. And, second, what, if anything, has been the contribution of the so-called economic "reforms", introduced from the beginning of the 1980s, towards our growth performance? The best we can say about growth in the last 25 years is that it has about equalled that of the corresponding earlier period.

While the overall rate of economic growth has been maintained, growth rates, compared with the earlier period, have shifted markedly between market sectors.

It might be said that this is nothing more than we should expect. Some market sectors are expanding while others contract. Up to a point, that is correct. But are the expansions and contractions where we want them to be? Are we, for example, happy with changes which turn us from a producing economy into a spending economy, along with all the unfortunate consequences which flow from those changes?

More needs to be said about that, but before looking at the detail of what has been happening in our economy over the last 25 years, let us first consider something of the aggregated position.

Overall, the economy has grown 126 per cent since 1980. But the tax take on outputs has been growing somewhat slower - at about 110 per cent. So what's wrong with lower taxes? In part, it depends on who gets the benefit, and also whether community services are sacrificed on the altar of tax cuts. If the latter happens, then lower tax collections mean that those who can least afford it, pay more for the same or worse community outcomes.

There is another reason why lower levels of tax collections might not be a sound indicator of higher prosperity. It is, for example, undeniably true that we have much higher real levels of unemployment over the last 25 years, compared with previously. That means significantly fewer wage packets are available to be taxed. And, on the other side of that particular coin, unemployment pushes up the welfare bill.

But let us now look at the breakdown of the ABS data by market sector.

For some unexplained reason, the ABS has chosen to aggregate health and welfare into a single sector. Time has prevented this writer from breaking down the figures.

Taken together, health and welfare have gone up in 25 years by 170 per cent - well above the overall GDP growth of 126 per cent. What the actual breakdown is between sectors can only be guessed at; but if we take a line on what has happened to the real employment levels, we can assume that the welfare outlays account for the greater part of the growth.

If that is so, then it follows that expenditure on health would be shown to have lagged behind either GDP or population growth. In other words, it has certainly not kept pace with community needs. Anecdotal evidence would suggest that health outlays are determined, not by community need, but by what the government judges ought to be spent.

This consideration alone is very interesting. Indeed, if we went no further, it would allow us to draw important conclusions about the genuine value of the experiment in economic reform that has been carried out over the last quarter century. But the sounder approach is to refrain from judgement until we have looked at all of the various market sectors.

Education outlays have risen from roughly $A20 billion to $A37 billion, that is, by 83 per cent - well short of the 126 per cent by which GDP has grown over the same period. The utilities sector, which includes energy production and presumably water, increased by 94 per cent. It, too, is therefore lagging behind the growth in GDP.

Except for mining, the so-called "productive" sectors of the economy are also falling behind. Even the minerals sector has not done all that well. It is up 184 per cent over the 1980 level - but that figure includes 2005, an important year in the boom of mineral exports.

Manufacturing, agriculture and fisheries are all lagging well behind the growth in GDP. Compared with overall GDP growth of 126 per cent, manufacturing has grown by a miserable 45 per cent, agriculture by 77 per cent and fisheries and forestry by 85 per cent. More recent figures still suggest that manufacturing output is actually in decline.

So where has the growth in output been most concentrated? Overwhelmingly in communications, property and finance.

Communications has risen from $A3.8 billion to 23.8 billion - a 526 per cent increase. Presumably, most of this would be accounted for by mobile phones and computers.

Property, including house sales, is up 255 per cent, followed by finance, just under 200 per cent.

Most of the remaining sectors, apart from transport and entertainment, seem to be about where you might expect. Transport, in particular, has made some gains - probably from the cheaper air fares now generally on offer.

Quite obviously, the biggest expansion has been in the communications and finance sectors - the former from a relatively small base, as supporters will be quick to remind us. Regardless of this, do we want an economy dominated to this extent by these two sectors? We did, after all, manage perfectly well, and with equally good growth rates, without the domination of communication and finance sectors.

Upsurge in speculation

The domination of the financial sector is a direct consequence of financial and market deregulation. With it has come the availability of funds necessary to finance a quite undesirable housing and consumer spending boom fuelled by imports. All of this - together with an upsurge in speculative trading in various forms of financial paper - has been financed by offshore borrowing.

What about the growth in communications outlays? Mostly, one presumes, it comes from the proliferation of computers and mobile phones. It will be said, correctly, that these have made significant contributions to business efficiency and personal convenience.

Even so, the way we have decided to structure our economy has meant that the communications revolution has brought with it unfortunate drawbacks.

All of the equipment associated with computers and mobile phones is imported, and its use has not notably improved the capacity of our manufacturing industries to export more to help pay for these imports. Are we getting the returns we are entitled to expect from all the extra outlays in the areas of finance and communications?

The performance on mining is in some ways disappointing, given that so much of the expectations of the proponents of so-called economic "reform" rests upon the benefits available from exporting minerals. Goodness knows where we would have been without the mining boom. Or, for that matter, where we will be when it peters out - as, eventually, do all mining booms.

Finally, there is the question of outlays on education. Currently, we are outlaying about two thirds of what we were spending 25 years ago on education. Given what has happened with population growth alone, the amount spent on education is totally inadequate. This inadequacy is not the only reason why we have a shortage of skilled labour, but it is a major contributing factor.

What the ABS statistics tell us about the economy's structure will come as no surprise to those questioning the merits of relying totally on market-driven economic policies. Indeed, the statistics demonstrate precisely how, and in what direction, the slavish commitment to these policies, will steer our economy.

Leaving our manufacturing industries exposed to the full blast of import competition - and also denying them the advantage of properly trained staff through under-funding the education system - is a formula for strangling the growth of manufacturing, both for import replacement and export.

Moreover, the rigorous application of competition policy denies manufacturers the opportunity of obtaining the profit margins needed to train staff themselves. Similarly with agriculture, demanding that our farmers survive, without help, in the face of subsidised import competition inevitably results in a decline in agricultural output.

As things presently stand, economic policy settings are driving us headlong towards an ever-increasing dependence on imports for our daily needs - and without the capacity to generate the export income necessary to pay for these needs.

An enhanced finance industry, in present circumstances, enables our economy to sustain itself, not by borrowing to sustain domestically-generated production for home consumption and export, but by using offshore borrowings to fund imports.

Some of the more perceptive commentators have already identified this unhealthy association of market and financial deregulation and ever-increasing indebtedness. What they can now point to is the accuracy of their predictions being confirmed by official ABS statistics. All the facts are there in plain language for the government to see.

The performance of manufacturing is appalling, and reflects the conscious efforts by ideologically-driven successive governments, going back to Hawke and Keating, to undermine if not destroy the sector.

Though not nearly as well publicised as manufacturing, the decline in agriculture is even more startling. Like manufacturing, agriculture has become the victim of obsessive dedication to the virtues of market forces and narrowly defined "competition".

The Government is beginning to show concern about the state of manufacturing industry. This is to be applauded. Unfortunately, nothing similar yet seems to be happening with agriculture - even from within the National Party, where most of the concern logically should lie.

The pressure needs to be applied to achieve the same concern for agriculture.

  • Colin Teese is a former deputy secretary of the Department of Trade.

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